FORFEITURE

What knowledge leads to waiver?

BRIE STEVENS-HOARE QC SIMON ALLISON

Hardwicke Brie Stevens-Hoare QC & Simon Allison October 2013

THE RIGHT TO FORFEIT What knowledge does a Landlord need before being held to have waived the right to forfeit?

INTRODUCTION

1.

When the Law Commission last examined the law of forfeiture, it said it was 'complex, it lacks coherence, and it can lead to injustice... the underlying problem is that the current system lacks transparency and that it is excessively technical and unnecessarily complicated'.

2.

The judiciary have not expressed any more positive thoughts on the subject. It has been described as a legal minefield with odd, and uneven, and unexpected, and unforeseeable results some people would say unfair results. Rexhaven Ltd v Nurse and Alliance & Leicester Building Society (1996) 28 HLR 241

3.

One aspect of that complexity is the law of waiver a frequent source of headaches for clients and lawyers alike. Can I accept / demand rent / service charge / do something else equally prejudicial?

THE NATURE OF WAIVER

4.

Waiver of the right to forfeit is a particular instance of waiver by election. Waiver by election is the abandonment of a right that occurs upon the party with that right making a choice between alternative rights.

Hardwicke Brie Stevens-Hoare QC & Simon Allison October 2013

5.

In other words a waiver by election arises where one party is forced into a situation where he has choice between two mutually inconsistent rights (such as whether to affirm or rescind a contract) and he then acts in a way that is only consistent with a choice to rely on one of the rights having been made.

6.

In the case of landlords and tenants when a tenant commits a breach that can, depending on the terms of the lease, trigger a number of remedies. Where the breach gives rise to a right to forfeit the landlord has a choice. The landlord may exercise the right to forfeit the lease or continue to hold the tenant to the terms of the lease. In either case the right to damages for any breach subsists.

THE ESSENTIALS FOR A WAIVER

7. In Yukong Line Ltd of Korea v Rendsburg Investments Corporation of Liberia & ors1 Moore-Bick J stated for the purposes of an election:The choice placed before the injured party is between inconsistent rights, and once the choice has been made and communicated to the other party to the contract, it is irrevocable. Unlike estoppel, election does not depend upon any change in position by the party to whom it is communicated. and A binding election requires the injured party to communicate his choice to the other party in clear and unequivocal terms. In particular, he will not be held bound by a qualified or conditional decision. 8. In order to make a choice a person needs to understand the choice they have. It follows for an election to occur the innocent party must have or be treated as having knowledge of that choice. In the context of an election the innocent partys unequivocal communication of his choice must be made at a time when he has

[1996] 2 Lloyds Rep 604 @ 607

Hardwicke Brie Stevens-Hoare QC & Simon Allison October 2013

knowledge not only of the facts which gave rise to the election but also of the right of election itself. Peyman v Lanjani [1985] Ch 457. 9. The burden of proving election lies on the party alleging the right to a remedy has been lost by election: the party in breach: Van Haarlam v Kasner Charitable Trust (1992) 64 P&CR 214. 10. It follows once the right to rescind or forfeit is established the party in breach must show the innocent party has

Knowledge of the facts underlying the right to rescind/forfeit;

Knowledge of the right to rescind/forfeit;

Made a clear recognisable choice between the inconsistent rights available to him; and

Communicated that choice

in order to successfully claim waiver it is necessary to show

WHAT IS KNOWLEDGE IN FORFEITURE CASES?

11.

It is important to note that in the context of forfeiture claims there is a specific factor that limits the scope of the knowledge that has to be shown. Unsurprisingly it is said a landlord must be taken to know of the right to forfeit for breach. The right only exists if it is expressly set out in the lease. As a party to that document the landlord will be taken to know its contents.

Hardwicke Brie Stevens-Hoare QC & Simon Allison October 2013

12.

Knowledge may be actual, imputed or constructive. Knowledge should be distinguished from suspicion.

13.

Imputed knowledge may well arise when an employee or agent, rather than the landlord, has knowledge. Knowledge will be imputed unless the duties of that individual do not include the duty to report the relevant matter to the landlord: David Blackstone v Burnetts (West End) [1973] 1 WLR 1487 and Doed Nash v Birch (1836) 1 M&W 402. So the knowledge of a porter, caretaker, managing agent or solicitor will very often be sufficient to establish the landlords knowledge.

14.

Recent authority supports the argument that if a landlord is put on inquiry but does not make any inquiry he will be taken to have constructive knowledge of the facts the inquiry would have revealed: Metropolitan Properties v Cordery (1980) 39 P&CR 10 and Van Haarlam v Kasner supra.

15.

A suspicion as opposed to knowledge is insufficient. The authorities on suspicion have involved situations where the landlord was suspicious enough to ask the tenant about the relevant matter and then the tenant lied. In those circumstances a landlord who does not proceed to forfeit because whilst not reassured by the tenants response he has not conclude the tenant lied will not have sufficient knowledge: Thomas v Ken Thomas [2007] 1 EG 94 CA. By way of contrast a landlord who suspects the breach and has reasonable grounds for doing so but chooses to take no step to establish the true position is likely to be found to have constructive knowledge rather than merely suspicions: Van Haarlam v Kasner supra.

A SUMMARY OF OTHER POINTS TO NOTE

16. Points to note on waiver: 5

Hardwicke Brie Stevens-Hoare QC & Simon Allison October 2013

o o

The right to forfeit is in the hands of the landlord Once the right is acquired (and learned about) the landlord cannot do anything inconsistent with his right to forfeit;

o o

If do something inconsistent, right to forfeit for that breach is lost forever; The inconsistent thing need not be in writing (even if that's what lease demands R v Paulson [1921] AC 271);

It must be before outward sign of forfeiture i.e. before physical re-entry or service of proceedings;

o o

It does not prevent recovery of damages for the breach; The burden of proving waiver is on the tenant.

17.

What can count as waiver? An act - not omission - which recognises the relationship of landlord and tenant; Knowledge by landlord, unequivocal expression of accepting continued relationship of landlord and tenant and communication to tenant; Intention to waive unnecessary; Accepting rent counts (Oak Property Co Ltd v Chapman [1947] KB 886) - even if you say without prejudice or describe as use & occupation; But if the rent fell due before the knowledge or act of breach that doesn't count as waiver and can still accept; If money is simply paid into bank account of landlord that doesn't count as waiver but be careful to quickly return the money (acceptance, and thus waiver, can be inferred from delay in returning payment John Lewis Properties Plc v Viscount Chelsea (1994) 67 PCR 120);

Hardwicke Brie Stevens-Hoare QC & Simon Allison October 2013

A demand for rent that is not received by the tenant doesn't amount to waiver (Trustees of Henry Smith's Charity v Willson (1983)); NB: consider position re: online account access.

Acceptance of rent by agent does amount to waiver even if the agent has been instructed not to accept it (Doe d. Thompson v Davis (1847) 10 L.T.O.S. 108; Central Estates (Belgravia) v Woolgar (No.2) [1972] 1 W.L.R. 1048) particular problem with residential leasehold managers!; Service of NTQ will waive (Marche v Christodoulakis (1947) TLR 466); Distress for rent (unless mandatory under s.210 Common Law Procedure Act 1852) whether or not for arrears due before the act of breach; Requesting an inspection pursuant to a clause in the lease (Cornillie v Saha [1996] EGCS 21); A court pleading; Service of a s.146 notice does not waive; Nor does accepting rent after forfeiture effected (i.e. after possession proceedings served or after physical re-entry).

18.

Demand for rent non-payment of which constitutes the breach: Landlord can safely demand the rent (after grace period ie 7, 14, 21 days i.e. after right to forfeit has arisen) which is the forfeiting event without waiving that event (but where other breaches, a demand will waive the right to forfeit which has arisen in respect of such breaches)

19.

Acceptance or demand for rent falling due after breach: Landlord show that he intends the lease to continue for a period following breach waiver

20.

Acceptance or demand of rent due prior to breach: not waiver even if rent payable in advance and covers period after breach 7

Hardwicke

Brie Stevens-Hoare QC & Simon Allison October 2013

21.

Appropriation: Tenant has the right to appropriate payments to a particular period rather than landlord as creditor which can result in waiver sometimes done intentionally by tenant But if tenant does not appropriate landlord can risky

22.

A continuing breach of covenant can arise immediately after the waiver unless landlord has said it will never insist on performance of that covenant again. A right to forfeit will thus continue to arise after the waiver. Examples: To repair (Doe d Baker v Jones (1850) 5 Ex 498) To insure (Doe d Muston v Gladwin (1845) 6 QB 953 Prohibition against particular use; Generally if require compliance at all times or amounts to an activity.

23.

However, a once and for all breach can be waived such that the right to forfeit is lost: Arrears of rent / service charge Assignment Subletting Failure to do repairs by a certain date

Hardwicke Brie Stevens-Hoare QC & Simon Allison October 2013